Magazine

Denmark Inherits the Wind

April 29, 2001

Gabled red-brick farmhouses dot the gently rolling green fields of the Jutland peninsula on Denmark's west coast. It's a scene straight out of a Hans Christian Andersen fairy tale--except for one prominent feature: Rising 30 stories are space-age white towers, topped with giant, three-bladed propellers that span 120 feet. Windmills have been part of Denmark's landscape for centuries--but not like these, and never with so much economic impact. "Many of our farmers make more money out of power generation than farming," says Johannes Poulsen, managing director of Vestas Wind System. Vestas leads a cluster of companies that have made tiny Denmark, population 5 million, the world's top producer and exporter of windmills.

For Denmark, wind power is a fairy tale come true. Not only does the wind industry supply about 13% of Denmark's power but Danish companies currently control about 50% of the $4.5 billion global windmill market, and their share is increasing. What's more, the market itself has been growing by 30% to 40% a year since the late 1990s, creating a tidy windfall for the manufacturers. Vestas, for example, has seen its stock rise twentyfold in three years. Revenues grew by 37% last year, to $738 million, and profits hit $103 million. "Wind is the great energy success story of the last decade," says Roderick Bridge, an analyst at HSBC Investment Bank in London.

FLAWED POLICY. The U.S. could have played a bigger role. American companies began to build the first generation of truly modern windmills in the early 1980s, armed with Carter-era tax credits aimed at promoting green energy. The credits got the industry off the ground, but the policy was flawed. Both the Federal government and California offered tax credits only for the installation of windmills, not for operating and maintaining them. So when the windmills broke down, they were often simply left to rust. After energy prices fell and funding for wind programs under Ronald Reagan contracted, the U.S. gave up its lead in wind technology. "It was Uncle Sam that birthed the industry, then lost it to the rest of the world," laments James Dehlsen, founder of U.S. turbine maker Zond Corp., which was sold later to Houston-based Enron Corp.

Denmark's public policy has been more consistent and was better conceived from the start. The government chose to pay windmill owners above-market prices for their power, subsidizing upkeep and investment in new technology. "The original California system encouraged doctors and dentists to buy wind turbines," says Vestas' Poulsen, "but our [wind producers] have much more of an incentive to care whether they work."

Another difference: From the beginning, Danish windmill makers knew they needed to export. "Our small home market gives us no choice," says Per Hornung Pedersen, chief financial officer at the second-largest Danish producer, NEG Micon. This early export focus gave the Danes a leg up on big competitors in Germany and Spain.

Wise technology choices helped the Danes build on the generous government support. While U.S. manufacturers working with aerospace technology concentrated on lightweight materials that were efficient but fragile, Danish companies started off as heavy-duty farm machinery makers. "The original Danish turbines were more than twice the weight of comparable American turbines and proved much more durable," recalls Birger T. Madsen, managing director of Denmark-based BTM Consult, a leading wind power consultancy.

Gradually, the Danes improved the efficiency of their devices. Where early models were outfitted with 225 kilowatt generators, today's models can churn out as much as of 2 megawatts, enough to power 2,000 homes. Larger 2.5- and 3-megawatt machines are under development--some of them destined for offshore environments where the wind is reliable but storms, waves, and salty conditions demand unprecedented ruggedness. And improvements in computerized control systems are helping turbines squeeze out more watts from the wind more efficiently. The best windmills now can produce a kilowatt-hour of electricity for about 4 cents--half the cost of five years ago and approaching the price of power generated by gas-fired plants.

Still, the wind business must overcome some giant hurdles, starting with political risks. In the U.S., a tax credit for wind power comes up for congressional renewal this December, at a time when President George W. Bush is pushing for a 30% cut in federal funding for renewable power and conservation programs. And even though wind power is increasingly cost competitive, many would-be windmill operators in both the U.S. and Europe still need subsidies to win long-term financing. So if the tax credit isn't renewed, the Danes' largest market could blow away.

LITTLE SECRET. Critics contend that the subsidies themselves are a problem. They argue that wind power will never prove its merit until the artificial tax credits and price supports on both sides of the Atlantic are removed. The Danish government pays more than $300 million to wind generators every year. "Partly as a result of those high subsidies, the Danes pay the highest rates for electricity in the world," argues Brian O'Connell, author of a book critical of renewable energy policies.

Skeptics have other objections, as well. Birds sometimes get chopped in the turbines. And people who live near wind farms often say they are an eyesore. But the biggest problems are intrinsic: Windmills only produce when the wind is up, and for now, there is no way to store the surplus electricity. Until that issue is resolved, BTM Consult figures wind systems could supply a maximum of about a third of global electricity demand. That's much more than now, but with solar and other renewables lagging far behind, the difference would still have to be made up by fossil fuels.

At least some of wind's liabilities may eventually be solved. Power-storage technologies are in development in laboratories around the world. And while the U.S. has officially repudiated the 1997 Kyoto Protocol, which called for dramatic cuts in carbon emissions, other governments are likely to encourage more wind power as part of the effort to reduce greenhouse gases. The European Union, for one, has set targets for a fivefold growth of renewable energy by 2010.

Worldwide, the Danes face growing competition from ABB. The giant Swedish-Swiss power company recently announced a novel type of gearless windmill that converts turbine rotation to energy by means of a magnet-run, transformerless high-voltage generator. Since the gearbox is often a source of trouble, ABB's gearless device could make a big splash in the market.

Nevertheless, many analysts believe the Danes have a comfortable edge. NEG Micon recently raised $100 million in fresh financing and is expected to report a profit for 2000. Its stock has more than tripled over the past year, yielding a market cap up to $1.5 billion. Vestas' market cap is $5.5 billion, and privately held companies report soaring sales.

Already, the windmill business has revived rural Jutland's economy, which previously struggled along on shipbuilding, fishing, and farming. When the shipyard in the town of Ringkobing went broke in 1999, Vestas converted the facilities to make windmills. Now, it's expanding the site and has doubled its workforce, to 3,000, in the past five years. "All the shipyard workers got jobs here," says Vestas welder Thomas Knudsen. Wind power may look like an anachronism. But it's gaining ground more quickly than other renewable sources. It may well turn out to be the green power of choice for the 21st century. By William Echikson in Ringkobing, Denmark, with Janet Ginsburg in Chicago